Home Loan with Default? Here's How to Secure Approval

Struggling with the aftermath of a paid default on your credit report and wondering if a home loan is still within reach? You're not alone. Many Australians find themselves in similar situations, concerned about how past financial missteps might affect their dream of home ownership. The good news is that obtaining a home loan with a paid default is possible, though it might require some extra legwork and understanding of the current lending landscape.

Understanding Home Loans with a Paid Default

A paid default occurs when you have settled an outstanding debt, but the record of the default remains on your credit report. This can be a hurdle when applying for a home loan, as lenders typically view defaults as a sign of potential risk. However, a paid default is often seen more favourably than an unpaid one, as it shows your willingness to settle your debts.

In 2026, the Australian housing market remains competitive, and lenders are keen to offer home loans to a broad range of borrowers, including those with paid defaults. Understanding the nuances of how lenders view defaults can empower you to navigate the home loan process more effectively.

Current Home Loan Rates, Requirements, and Options

Interest rates in 2026 for borrowers with a paid default can range from 6.49% to 12%, depending on various factors such as the severity and age of the default, your overall credit history, and the chosen lender. Here are some key points to consider:

• Age of Default: Lenders typically view older defaults more leniently. A default that was paid off several years ago may have less impact than a more recent one.
• Credit Score: Improving your credit score by managing other debts responsibly can offset the impact of a paid default.
• Lender Criteria: Different lenders have different risk appetites and criteria. Some lenders on Esteb and Co’s panel of 83+ lenders specialise in borrowers with credit impairments.

Steps to Secure a Home Loan with a Paid Default

1. Review Your Credit Report: Obtain a copy of your credit report to ensure all details are accurate. Rectify any discrepancies before applying for a home loan.
2. Consult with a Mortgage Broker: Leverage the expertise of a broker like Esteb and Co to explore options tailored to your financial situation.
3. Improve Your Credit Standing: Pay off outstanding debts and avoid taking on new debt. This can help boost your credit score.
4. Save for a Larger Deposit: A larger deposit reduces the lender's risk and may improve your chances of approval.
5. Prepare Financial Documents: Ensure all income and financial documents are up-to-date and accurately reflect your financial standing.
6. Apply with Confidence: Once you've selected a lender, submit your application with all required documentation.

Tips and Considerations

Here are some expert tips to consider when applying for a home loan with a paid default:

• Be Honest and Transparent: Lenders appreciate candour. Explain the circumstances that led to the default and how you've rectified the situation.
• Consider a Guarantor: Having a guarantor can provide additional security for the lender and improve your application’s likelihood of success.
• Focus on Lender Relationships: Building a rapport with potential lenders can be advantageous. They may be more willing to consider your application favourably.
• Stay Informed: Keep abreast of changes in the housing market and lending criteria to ensure you're making informed decisions.

Frequently Asked Questions

1. Can I still get a competitive interest rate with a paid default?
   Yes, it's possible to secure a competitive rate, especially if the default is old and you've improved your credit score.
2. How long does a paid default remain on my credit report?
   A paid default typically stays on your credit report for five years from the date of default.
3. Will all lenders consider my application?
   Not all lenders will, but many, especially specialist lenders, may consider applications with paid defaults.
4. Should I pay off other debts before applying?
   Yes, paying off other debts can improve your credit score and strengthen your home loan application.
5. How can Esteb and Co help me?
   As a mortgage broker with access to 83+ lenders, Esteb and Co can help find tailored loan options that suit your financial situation.
6. Is it worth waiting until the default is removed?
   This depends on your personal circumstances. Consulting with a mortgage broker can help determine the best timing for your situation.
7. What if my financial situation changes?
   If your finances improve, you may be able to refinance for better terms in the future.